Walmart faces competitive pressure from Amazon, looks to Flipkart to help them gain some ground.

Amazon has become a giant player in the food industry. Its purchase of Whole Foods last year proved that not only is Amazon here to stay, but that it was serious about making a shift into both brick-and-mortar assets and the grocery industry. By the end of 2017 it was looking like Amazon had gained enough ground to be quite the formidable retailer.

Now, Walmart has begun taking the necessary steps to increase market share. It announced this month that Flipkart was now part of the Walmart portfolio, India’s biggest online retail platform.

The Deal Heard ‘Round The World

The Walmart Flipkart deal is the world’s largest e-commerce deal. Walmart announced this month that for a whopping $16 billion, it has acquired roughly 77 percent of Flipkart.

More specifically, Walmart has agreed to make a combined purchase of $14 billion in stakes from existing investors and $2 billion in new shares.

Once the deal is closed, Walmart also plans on investing an additional $3 billion within the first year. The Walmart Flipkart deal is expected to close later this year. Additionally, if it does close in the second quarter of the fiscal year, Walmart expects a hit to the full year 2019 earnings per share of roughly 25 cents to 30 cents.

While it may bring risk, the deal seems well worth it to Doug McMillon, President and Chief Executive of Walmart, who sees this as their best plan of action to get in on India’s fast-growing economy.

“India is one of the most attractive retail markets in the world, given its size and growth rate, and our investment is an opportunity to partner with the company that is leading transformation of e-commerce in the market,” said McMillon.

High Risk, High Reward

Many have been left wondering why Walmart would not channel those funds into expanding its ground in the U.S., considering Amazon is a dominant force in the U.S. e-commerce industry. However, Walmart is more focused on the potential India promises.

As the second most populous country in the world, India’s consumers are highly influential in retail patterns, with its ever-growing middle class that has begun to spark a rise in household spending projected to rival China in the near future.

India’s e-commerce sales for 2017, which were a total of $21 billion, made them the 10th biggest e-commerce market in the world. In addition, India’s online retail industry is projected to grow 141 percent to over $50 billion between by 2021.

Those numbers weighed heavily in the decision to acquire Flipkart as they are India’s e-commerce market leader. Add to that the fact that Amazon’s global e-commerce revenue in 2017, $108.4 billion, far surpassed Walmart’s $17.5 billion, the Flipkart acquisition is a way in which to compete with Amazon’s earnings.

An Unsure Crowd

While the numbers may all point to big profit for Walmart, does this really stand to benefit Walmart investors? Additionally, how does India stand to benefit from this?

The deal has no doubt elicited strong opinions in both the U.S. and India, with all parties concerned for the wellbeing of all and how to best achieve it.

The remaining percent of Flipkart will be held by existing investors, which include Binny Bansal, Co-Founder of Flipkart. The Walmart Flipkart deal also includes plans for new investors to join, essentially reducing Walmart’s stake. This could prove to be beneficial as the announcement has caused pushback not just in India, but stateside as well.

Swadeshi Jagran Manch recently wrote an open letter to India’s prime minister strongly opposing the deal, and Tamil Nadu Vanigar Sangankalin Peramaippu—a federation of traders in Tamil Nadu—has announced its plans to lead a country-wide protest should the Walmart Flipkart deal be approved.

Meanwhile, despite the data indicating the Walmart Flipkart deal is beneficial for Walmart, many of its investors are skeptical over the cost and show dislike for the deal in general. Questions about whether the deal will benefit Walmart have risen among investors across the U.S.

“I think investors got this deal exactly right: it makes zero sense. I read Walmart’s presentation and listened to the entirety of its call with investors and I remain as puzzled as I was when I heard the deal,” said Ben Thompson, business, technology, and media analyst.

Thompson added that the deal does not guarantee a long-term benefit for Walmart other than to make it harder for Amazon to gain traction in India—which would only work for so long. He elaborated that the money could have been better spent stateside.

For Dan Binder, Managing Director at Jefferies, the verdict isn’t so clear.

“Longer-term investors see value and short-term investors see dilution and near-term share weakness.”

Binder explained that time is what will determine how beneficial the Walmart Flipkart deal ends up being and pointed to Walmart’s plans to support Flipkart’s future transition into a publicly listed subsidiary.

“How far in the future is unclear, but given clear advantages to doing this, we would be surprised if it was more than two to three years,” said Binder.

Experts and investors can only speculate what the outcome will be as the deal has until March 9, 2019 to finalize and India still has yet to grant regulatory approval for the deal. Will this be a huge advantage of the retail juggernaut Walmart? Only time will tell.